7. Equity and Efficiency
The majority of government revenue earned is not spent on explicitly redistributive programs, such as those discussed in previous lectures about efficiency and equity. In fact, the majority of government revenue earned is devoted to social insurance. Social insurance is designed to insure individuals against risk in cases where the private market may not effectively provide such insurance. In this lecture, we will begin to learn about the role of social insurance.
In the United States, federal government social insurance programs are generally funded through payroll taxes. Social insurance programs in the United States include Old Age, Survivors, and Disability Insurance benefits, Medicare benefits, and unemployment benefits.
Social insurance is a set of insurance programs that are administered by a government. Just like private sector insurance, they provide benefits upon the occurrence of certain insured events. For example, unemployment insurance provides benefits if an insured person becomes unemployed. Additionally, just like private sector insurance programs, only citizens that contribute to a social insurance program are eligible to receive benefits from the program. Social insurance benefits are funded in the United States through payroll taxes.
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